U.S. Treasury Secretary Yellen spoke about the danger that U.S. dollar-based sanctions might pose to the hegemony of the U.S. dollar in international markets. According to Yellen, the government is trying to impose “sensible” sanctions because sanctions may inspire people to look for alternatives to the US dollar.
U.S. Treasury Secretary Yellen talks about the dangers of dollar weaponization
U.S. Treasury Secretary Janet Yellen addressed the possible impact of continued sanctions on the hegemony of the U.S. dollar in international markets. In an interview with Reuters, Yellen acknowledged that such a danger exists in the long term.
On this issue, she said,:
So, there is a risk that, over time, financial sanctions related to the role of the dollar could, as you say, undermine the hegemony of the dollar. But it is a very important tool and one that we try to use with caution.
Yellen recognizes that these sanctions have caused countries such as China and Russia to seek alternatives to the U.S. dollar in order to trade despite the sanctions. However, Yellen explained that this is not an easy task due to the nature of the dollar. Yellen expanded on this, declaring:
I can’t find any other country that has the basic infrastructure, the institutional infrastructure, that allows its currency to serve the world in this way.
This is the same conclusion as the Bank of Russia’s report, “Review of the Russian Financial Sector and Financial Instruments,” which states that the current structure of foreign trade makes it difficult to replace the US dollar.
Sanctioned countries seek alternatives
Despite various difficulties, countries with individuals and entities sanctioned by the Office of Foreign Assets Control (OFAC), such as China, Russia, and Iran, have begun to develop integration policies to trade away from the US dollar.
China and Russia have already begun to trade in yuan payments, using specially designated banks as clearing houses to facilitate payments. Brazilian President Luiz Inacio da Silva recently visited China and called for developing countries to abandon the U.S. dollar and for the BRICS to establish a new currency.
The insurance of a BRICS currency will be discussed at the next BRICS summit in South Africa in August, according to Russian parliament officials. In addition, Russia and Iran are finalizing an agreement to deepen trade cooperation by avoiding unfavorable sanctions imposed by the United States.
What do you think about U.S. Treasurys?